Loans and Allowance for Loan Losses | 12 Months Ended |
Dec. 31, 2013 |
Loans and Allowance for Loan Losses | ' |
Loans and Allowance for Loan Losses | ' |
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6. Loans and Allowance for Loan Losses |
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        Major classifications of loans are as follows: |
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| | December 31, 2013 | | December 31, 2012 | |
| | Legacy(1) | | Acquired | | Total | | Legacy(1) | | Acquired | | Total | |
Commercial Real Estate | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | $ | 163,105,356 | | $ | 30,102,731 | | $ | 193,208,087 | | $ | 143,659,006 | | $ | 35,918,995 | | $ | 179,578,001 | |
Investment | | | 162,188,671 | | | 54,091,676 | | | 216,280,347 | | | 86,718,482 | | | 25,856,159 | | | 112,574,641 | |
Hospitality | | | 67,291,387 | | | 8,546,239 | | | 75,837,626 | | | 61,278,653 | | | — | | | 61,278,653 | |
Land and A&D | | | 40,595,806 | | | 8,399,178 | | | 48,994,984 | | | 22,633,751 | | | 3,328,394 | | | 25,962,145 | |
Residential Real Estate | | | | | | | | | | | | | | | | | | | |
First Lien—Investment | | | 45,294,434 | | | 28,364,096 | | | 73,658,530 | | | 27,872,303 | | | 17,752,952 | | | 45,625,255 | |
First Lien—Owner Occupied | | | 13,909,939 | | | 62,247,502 | | | 76,157,441 | | | 6,794,384 | | | 29,298,823 | | | 36,093,207 | |
Residential Land and A&D | | | 19,845,291 | | | 13,724,942 | | | 33,570,233 | | | 20,191,960 | | | 7,802,094 | | | 27,994,054 | |
HELOC and Jr. Liens | | | 18,302,560 | | | 3,359,063 | | | 21,661,623 | | | 16,405,433 | | | 3,263,189 | | | 19,668,622 | |
Commercial and Industrial | | | 89,629,043 | | | 11,161,347 | | | 100,790,390 | | | 69,746,472 | | | 8,490,785 | | | 78,237,257 | |
Consumer | | | 10,127,525 | | | 870,843 | | | 10,998,368 | | | 9,944,466 | | | 1,059,991 | | | 11,004,457 | |
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| | | 630,290,012 | | | 220,867,617 | | | 851,157,629 | | | 465,244,910 | | | 132,771,382 | | | 598,016,292 | |
Allowance for loan losses | | | (4,397,552 | ) | | (531,661 | ) | | (4,929,213 | ) | | (3,648,723 | ) | | (316,624 | ) | | (3,965,347 | ) |
Deferred loan costs, net | | | 1,021,167 | | | (993 | ) | | 1,020,174 | | | 1,093,983 | | | — | | | 1,093,983 | |
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| | $ | 626,913,627 | | $ | 220,334,963 | | $ | 847,248,590 | | $ | 462,690,170 | | $ | 132,454,758 | | $ | 595,144,928 | |
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-1 |
As a result of the acquisitions of Maryland Bankcorp, Inc. (Maryland Bankcorp), the parent company of Maryland Bank & Trust Company, N.A. (MB&T), in April 2011 and of WSB Holdings, the parent company of WSB, in May 2013, we have segmented the portfolio into two components, loans originated by the Bank (legacy) and loans acquired from MB&T and WSB (acquired). |
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Credit Policies and Administration |
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        We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. We have designed our underwriting standards to promote a complete banking relationship rather than a transactional relationship. In an effort to manage risk, prior to funding, the loan committee consisting of the Executive Officers and seven members of the Board of Directors must approve by a majority vote all credit decisions in excess of a lending officer's lending authority. |
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        Management believes that it employs experienced lending officers, secures appropriate collateral and carefully monitors the financial condition of its borrowers and loan concentrations. |
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        In addition to the internal business processes employed in the credit administration area, the Bank retains an outside independent firm to review the loan portfolio. This firm performs a detailed annual review and an interim update. We use the results of the firm's report to validate our internal ratings and we review the commentary on specific loans and on our loan administration activities in order to improve our operations. |
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Commercial Real Estate Loans |
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        We finance commercial real estate for our clients, for owner occupied and investment properties. Commercial real estate loans totaled $534.3 million and $379.4 million at December 31, 2013 and 2012. This lending has involved loans secured by owner-occupied commercial buildings for office, storage and warehouse space, as well as non-owner occupied commercial buildings. Our underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayments, guarantor requirements, net worth requirements and quality of cash flows. Loans secured by commercial real estate may be large in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent of successful operation or management of the properties. We will generally finance owner occupied commercial real estate at a maximum loan to value of 85% and investor real estate at a maximum loan to value of 75%. |
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        Commercial real estate lending entails significant risks. Risks inherent in managing our commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate that may detrimentally impact the borrower's ability to repay. We monitor the financial condition and operating performance of the borrower through a review of annual tax returns and updated financial statements. In addition, we meet with the borrower and/or perform site visits as required. |
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        At December 31, 2013, we had approximately $75.8 million of commercial real estate loans outstanding to the hospitality industry. An individual review of these loans indicates that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators and are generally dispersed throughout the region. |
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Residential Real Estate Loans |
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        We offer a variety of consumer oriented residential real estate loans including home equity lines of credit, home improvement loans and first or second mortgages on investment properties. Our residential loan portfolio amounted to $205.0 and $129.4 million at December 31, 2013 and 2012. Although most of these loans are in our primary market area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our residential real estate loans with a security interest in the borrower's primary or secondary residence with a loan to value not exceeding 85%. Our initial underwriting includes an analysis of the borrower's debt/income ratio which generally may not exceed 43%, collateral value, length of employment and prior credit history. A credit score of 660 is required. We do not originate any subprime residential real estate loans. We also originate loans for resale in the secondary market on a servicing released basis and record these loans as held-for-sale. The premium is recorded in gain on sale of loans in non-interest income. Our minimum credit score required for loans sold in secondary market is 640 with some exceptions to 620 for Veterans. |
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        This segment of our portfolio also consists of funds advanced for construction of single family residences, multi-family housing and commercial buildings for the construction of custom homes (where the home buyer is the borrower) and provides financing to builders and consumers for the construction of pre-sold homes. We also make commercial real estate construction loans, primarily for owner-occupied properties. To mitigate the risks, we generally limit loan amounts to 80% or less of appraised values and obtain first lien positions on the property. The Bank limits its construction lending risk through adherence to established underwriting procedures. These loans generally have short durations, meaning maturities typically of nine months or less. Residential houses, multi-family dwellings and commercial buildings under construction and the underlying land for which the loan was obtained secure the construction loans. The vast majority of these loans are concentrated in our primary market area. |
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        Construction lending also entails significant risk. These risks involve larger loan balances concentrated with single borrowers with funds advanced upon the security of the land or the project under construction. An appraisal of the property estimates the value of the project prior to completion of construction. Thus, it is more difficult to accurately evaluate the total loan funds required to complete a project and related loan to value ratios. To mitigate the risks, we generally limit loan amounts to 80% or less of appraised values and obtain first lien positions on the property. We generally only offer real estate construction financing to experienced builders, commercial entities or individuals who have demonstrated the ability to obtain a permanent loan "take-out". We also perform a complete analysis of the borrower and the project under construction. This analysis includes a review of the cost to construct, the borrower's ability to obtain a permanent "take-out", the cash flow available to support the debt payments and construction costs in excess of loan proceeds, and the value of the collateral. During construction, we advance funds on these loans on a percentage of completion basis. We inspect each project as needed prior to advancing funds during the term of the construction loan. |
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Commercial Business Lending |
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        Our commercial business lending consists of lines of credit, revolving credit facilities, accounts receivable financing, term loans, equipment loans, SBA loans, standby letters of credit and unsecured loans. We originate commercial business loans for any business purpose including the financing of leasehold improvements and equipment, the carrying of accounts receivable, general working capital, and acquisition activities. We have a diverse client base and we do not have a concentration of these types of loans in any specific industry segment. We generally secure commercial business loans with accounts receivable, equipment, deeds of trust and other collateral such as marketable securities, cash value of life insurance and time deposits at the Bank. |
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        Commercial business loans generally depend on the success of the business for repayment. They may also involve high average balances, increased difficulty monitoring and a high risk of default. To help manage this risk, we typically limit these loans to proven businesses and we generally obtain appropriate collateral and personal guarantees from the borrower's principal owners and monitor the financial condition of the business. For loans in excess of $250,000, monitoring generally includes a review of the borrower's annual tax returns and updated financial statements. |
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Consumer Installment Lending |
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        We offer various types of secured and unsecured consumer loans. We make consumer loans for personal, family or household purposes as a convenience to our customer base. However, these loans are not a focus of our lending activities. As a general guideline, a consumer's total debt service should not exceed 40% of his or her gross income. The underwriting standards for consumer loans include a determination of the applicant's payment history on other debts and an assessment of his or her ability to meet existing obligations and payments on the proposed loan. |
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        Consumer loans are risky because they are unsecured or rapidly depreciating assets secure these loans. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation. Consumer loan collections depend on the borrower's continuing financial stability. If a borrower suffers personal financial difficulties, the consumer may not repay the loan. Also, various federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans. |
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Concentrations of Credit |
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        Most of our lending activity occurs within the state of Maryland within the suburban Washington, D.C. market area in Anne Arundel, Calvert, Charles, Montgomery, Prince George's and St. Mary's counties. The majority of our loan portfolio consists of commercial real estate loans and commercial and industrial loans. As of December 31, 2013 and 2012, the only industry in which we had a concentration of loans was the hospitality industry, as previously mentioned. |
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Non-Accrual and Past Due Loans |
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        We consider loans past due if the borrower has not paid the required principal and interest payments when due under the original or modified terms of the promissory note and place a loan on non-accrual status when the payment of principal or interest has become 90 days past due. When we classify a loan as non-accrual, we no longer accrue interest on such loan and we reverse any interest previously accrued but not collected. We will generally restore a non-accrual loan to accrual status when the borrower brings delinquent principal and interest payments current and we expect to collect future monthly principal and interest payments. We recognize interest on non-accrual legacy loans only when received. We originally recorded purchased, credit-impaired loans at fair value upon acquisition, and an accretable yield is established and recognized as interest income on purchased loans to the extent subsequent cash flows support the estimated accretable yield. Purchased, credit-impaired loans that perform consistently with the accretable yield expectations are not reported as non-accrual or non-performing. However, purchased, credit-impaired loans that do not continue to perform according to accretable yield expectations are considered impaired, and presented as non-accrual and non-performing. Currently, management expects to fully collect the carrying value of acquired, credit-impaired loans. |
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        The table below presents an aging analysis of the loan held for investment portfolio at December 31, 2013 and 2012. |
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| | Age Analysis of Past Due Loans | |
| | December 31, 2013 | | December 31, 2012 | |
| | Legacy | | Acquired | | Total | | Legacy | | Acquired | | Total | |
Current | | $ | 620,559,847 | | $ | 214,086,692 | | $ | 834,646,539 | | $ | 461,628,288 | | $ | 128,070,641 | | $ | 589,698,929 | |
Accruing past due loans: | | | | | | | | | | | | | | | | | | | |
30 - 89Â days past due | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 828,388 | | | 54,035 | | | 882,423 | | | 830,349 | | | — | | | 830,349 | |
Investment | | | — | | | 534,694 | | | 534,694 | | | — | | | — | | | — | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 521,405 | | | 845,018 | | | 1,366,423 | | | 531,521 | | | 250,000 | | | 781,521 | |
First-Owner Occupied | | | — | | | 2,584,408 | | | 2,584,408 | | | — | | | 260,251 | | | 260,251 | |
Land and A&D | | | — | | | 35,162 | | | 35,162 | | | — | | | — | | | — | |
HELOC and Jr. Liens | | | — | | | — | | | — | | | — | | | 48,921 | | | 48,921 | |
Commercial | | | 224,322 | | | 396,215 | | | 620,537 | | | 436,868 | | | 36,923 | | | 473,791 | |
Consumer | | | — | | | 14,108 | | | 14,108 | | | — | | | 6,283 | | | 6,283 | |
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Total 30 - 89Â days past due | | | 1,574,115 | | | 4,463,640 | | | 6,037,755 | | | 1,798,738 | | | 602,378 | | | 2,401,116 | |
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90 or more days past due | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | — | | | 309,767 | | | 309,767 | | | — | | | — | | | — | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | — | | | — | | | — | | | — | | | — | | | — | |
First-Owner Occupied | | | — | | | 429,144 | | | 429,144 | | | — | | | — | | | — | |
Land and A&D | | | — | | | 915,649 | | | 915,649 | | | — | | | — | | | — | |
Consumer | | | — | | | — | | | — | | | — | | | 6,410 | | | 6,410 | |
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Total 90 or more days past due | | | — | | | 1,654,560 | | | 1,654,560 | | | — | | | 6,410 | | | 6,410 | |
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Total accruing past due loans | | | 1,574,115 | | | 6,118,200 | | | 7,692,315 | | | 1,798,738 | | | 608,788 | | | 2,407,526 | |
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Recorded Investment Non-accruing loans: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 1,849,685 | | | — | | | 1,849,685 | | | — | | | 771,190 | | | 771,190 | |
Investment | | | — | | | 376,050 | | | 376,050 | | | — | | | — | | | — | |
Hospitality | | | 4,473,345 | | | — | | | 4,473,345 | | | — | | | — | | | — | |
Land and A&D | | | — | | | — | | | — | | | 351,276 | | | 200,000 | | | 551,276 | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 123,183 | | | — | | | 123,183 | | | 138,708 | | | 925,696 | | | 1,064,404 | |
First-Owner Occupied | | | 925,814 | | | 156,143 | | | 1,081,957 | | | 453,165 | | | 1,818,051 | | | 2,271,216 | |
Land and A&D | | | — | | | 130,532 | | | 130,532 | | | — | | | 341,624 | | | 341,624 | |
Commercial | | | 769,597 | | | — | | | 769,597 | | | 874,735 | | | 35,392 | | | 910,127 | |
Consumer | | | 14,426 | | | — | | | 14,426 | | | — | | | — | | | — | |
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Total Recorded Investment | | | | | | | | | | | | | | | | | | | |
Non-accruing past due loans: | | | 8,156,050 | | | 662,725 | | | 8,818,775 | | | 1,817,884 | | | 4,091,953 | | | 5,909,837 | |
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Total Loans | | $ | 630,290,012 | | $ | 220,867,617 | | $ | 851,157,629 | | $ | 465,244,910 | | $ | 132,771,382 | | $ | 598,016,292 | |
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        We evaluate all impaired loans, which includes non-performing loans and troubled debt restructurings (TDRs). We do not recognize interest income on non-performing loans during the time period that the loans are non-performing on either a cash or accrual basis. We only recognize interest income on non-performing loans when we receive payment in full for all amounts due of all contractually required principle and interest, and the loan is current with its contractual terms. The accrued interest recognized on impaired loans was immaterial during the year ended December 31, 2012. |
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        We individually evaluate all legacy substandard loans risk rated seven, certain legacy special mention loans risk rated six and all legacy TDRs, for impairment. We individually evaluate all acquired loans that we risk rated substandard seven subsequent to the acquisition, certain acquired special mention loans risk rated six and all acquired TDRs for impairment. We also evaluate all loans acquired and recorded at fair value under ASC 310-30 for impairment. |
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        The table below presents our impaired loans at December 31, 2013. |
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Impaired Loans Twelve months ended December 31, 2013 | | | | |
| | Unpaid | | Recorded | | Related | | Average | | Interest | | | | |
Principal | Investment | Allowance | Recorded | Income | | | |
Balance | | | Investment | Recognized | | | |
Legacy | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | $ | 1,849,685 | | $ | 1,849,685 | | $ | — | | $ | 1,855,418 | | $ | 70,711 | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 123,183 | | | 123,183 | | | — | | | 129,105 | | | — | | | | |
Commercial | | | 2,136,376 | | | 2,136,376 | | | — | | | 2,235,110 | | | 90,917 | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 274,516 | | | 274,516 | | | 137,258 | | | 282,630 | | | 18,177 | | | | |
Investment | | | 1,363,821 | | | 1,363,821 | | | 136,382 | | | 1,385,973 | | | 63,855 | | | | |
Hospitality | | | 4,473,345 | | | 4,473,345 | | | 1,250,000 | | | 4,491,435 | | | 105,772 | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Owner Occupied | | | 925,814 | | | 925,814 | | | 167,450 | | | 931,492 | | | 16,664 | | | | |
Commercial | | | 459,439 | | | 459,439 | | | 191,753 | | | 510,230 | | | 31,018 | | | | |
Consumer | | | 7,390 | | | 7,390 | | | 7,390 | | | 7,426 | | | 32 | | | | |
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Total legacy impaired | | | 11,613,569 | | | 11,613,569 | | | 1,890,233 | | | 11,828,819 | | | 397,146 | | | | |
Acquired(1) | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 605,314 | | | 579,583 | | | — | | | 590,677 | | | 24,821 | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
Land and A&D | | | 1,628,156 | | | 241,624 | | | — | | | 241,624 | | | — | | | | |
Commercial | | | 87,387 | | | 87,387 | | | — | | | 88,508 | | | 4,533 | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Investment | | | 372,047 | | | 376,050 | | | 279,037 | | | 376,047 | | | 17,509 | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Owner Occupied | | | 411,891 | | | 412,742 | | | 187,109 | | | 414,020 | | | 11,460 | | | | |
Land and A&D | | | 131,031 | | | 130,532 | | | 65,515 | | | 130,332 | | | 8,709 | | | | |
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Total acquired impaired | | | 3,235,826 | | | 1,827,918 | | | 531,661 | | | 1,841,208 | | | 67,032 | | | | |
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Total impaired | | $ | 14,849,395 | | $ | 13,441,487 | | $ | 2,421,894 | | $ | 13,670,027 | | $ | 464,178 | | | | |
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Generally accepted accounting principles require that we record acquired loans at fair value at acquisition date. These loans are not performing according to their contractual terms and meet our definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we may accrete their fair value discounts to interest income as a result of pre-payments that exceeds our cash flow expectations or payment in full of amounts due even though we classify them as non-accrual. |
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        The table below presents our impaired loans at December 31, 2012. |
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Impaired Loans Twelve months ended December 31, 2012 | | | | | | | |
| | Unpaid | | Recorded | | Related | | Average | | | | | | | |
Principal | Investment | Allowance | Recorded | | | | | | |
Balance | | | Investment | | | | | | |
Legacy | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | $ | 138,708 | | $ | 138,708 | | $ | — | | $ | 167,157 | | | | | | | |
First-Owner Occupied | | | 453,165 | | | 453,165 | | | — | | | 546,108 | | | | | | | |
Commercial | | | 874,735 | | | 874,735 | | | — | | | 1,199,983 | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Land and A&D | | | 350,340 | | | 350,340 | | | 100,000 | | | 1,270,542 | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Owner Occupied | | | 499,122 | | | 499,122 | | | 25,000 | | | 499,122 | | | | | | | |
Commercial | | | — | | | — | | | — | | | 77,976 | | | | | | | |
Consumer | | | — | | | — | | | — | | | 142,671 | | | | | | | |
| | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | |
Total legacy impaired | | | 2,316,070 | | | 2,316,070 | | | 125,000 | | | 3,903,559 | | | | | | | |
Acquired(1) | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 3,551,362 | | | 1,375,517 | | | — | | | 1,678,172 | | | | | | | |
Land and A&D | | | 349,698 | | | 200,000 | | | — | | | 202,674 | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 2,316,099 | | | 925,696 | | | | | | 1,348,140 | | | | | | | |
First-Owner Occupied | | | 1,629,095 | | | 456,530 | | | — | | | 620,257 | | | | | | | |
Land and A&D | | | 244,700 | | | 100,000 | | | — | | | 65,856 | | | | | | | |
Commercial | | | 214,697 | | | 126,140 | | | — | | | 172,982 | | | | | | | |
Consumer | | | — | | | — | | | — | | | 51,540 | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Land and A&D | | | 1,628,156 | | | 241,624 | | | 241,624 | | | 657,812 | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Owner Occupied | | | 1,620,660 | | | 1,361,520 | | | 75,000 | | | 543,133 | | | | | | | |
| | | | | | | | | | | | | | | |
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Total acquired impaired | | | 11,554,467 | | | 4,787,027 | | | 316,624 | | | 5,340,566 | | | | | | | |
| | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | |
Total impaired | | $ | 13,870,537 | | $ | 7,103,097 | | $ | 441,624 | | $ | 9,244,125 | | | | | | | |
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-1 |
Generally accepted accounting principles require that we record acquired loans at fair value at acquisition date. These loans are not performing according to their contractual terms and meet our definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we may accrete their fair value discounts to interest income as a result of pre-payments that exceeds our cash flow expectations or payment in full of amounts due even though we classify them as non-accrual. |
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        We consider a loan a TDR when we conclude that both of the following conditions exist: the restructuring constitutes a concession and the debtor is experiencing financial difficulties. Restructured loans at December 31, 2013 consisted of five loans for $666,970 compared to five loans at December 31, 2012 for $1,193,260. |
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        The following table includes the recorded investment and number of modifications for TDRs for the years ended December 31, 2013 and 2012. We report the recorded investment in loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Reductions in the recorded investment are primarily due to the partial charge-off of the principal balance prior to the modification. |
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| | | | | | | | | | | | | | | | | | | |
| | Loans Modified as a TDR for the twelve months ended | |
| | December 31, 2013 | | December 31, 2012 | |
Troubled Debt Restructurings— | | # of | | Pre- | | Post | | # of | | Pre- | | Post | |
(Dollars in thousands) | Contracts | Modification | Modification | Contracts | Modification | Modification |
| | Outstanding | Outstanding | | Outstanding | Outstanding |
| | Recorded | Recorded | | Recorded | Recorded |
| | Investment | Investment | | Investment | Investment |
Acquired | | | | | | | | | | | | | | | | | | | |
Residential Real Estate Owner Occupied | | | 1 | | | 60 | | | 60 | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
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Total Troubled Debt Restructurings | | | 1 | | $ | 60 | | $ | 60 | | | — | | $ | — | | $ | — | |
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        There were no loans that were modified as TDRs during the previous 12 months and for which there was a payment default during the years ended December 31, 2013 or 2012. |
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Acquired loans |
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        The following table outlines the contractually required payments receivable, cash flows we expect to receive, non-accretable credit adjustments and the accretable yield for all WSB impaired loans as of the acquisition date. |
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WSB Acquired Impaired Loans as of May 10, 2013 |
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| | | | | | | | | | | | | | | | | | | |
May 10, 2013 | | Contractually | | Non-Accretable | | Cash Flows | | Accretable | | Loans | | | | |
Required | Credit | Expected To Be | Yield | Receivable | | | |
Payments | Adjustments | Collected | | | | | |
Receivable | | | | | | | |
Business loans risk rated 4 at acquisition | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | |
Business loans risk rated 5 at acquisition | | | 33,038 | | | 19,822 | | | 13,216 | | | 21 | | | 13,195 | | | | |
Business loans risk rated 6 at acquisition | | | 233,880 | | | 140,328 | | | 93,552 | | | 10,765 | | | 82,787 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total business loans | | | 266,918 | | | 160,150 | | | 106,768 | | | 10,786 | | | 95,982 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Real estate loans risk rated 4 at acquisition | | | 6,352,445 | | | 2,155,197 | | | 4,197,248 | | | 655,823 | | | 3,541,425 | | | | |
Real estate loans risk rated 5 at acquisition | | | 7,346,174 | | | 1,938,104 | | | 5,408,070 | | | 643,135 | | | 4,764,935 | | | | |
Real estate loans risk rated 6 at acquisition | | | 19,385,909 | | | 8,261,491 | | | 11,124,418 | | | 1,497,052 | | | 9,627,366 | | | | |
Real estate loans risk rated 7 at acquisition | | | 424,784 | | | 157,367 | | | 267,417 | | | (60,149 | ) | | 327,566 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total real estate loans | | | 33,509,312 | | | 12,512,159 | | | 20,997,153 | | | 2,735,861 | | | 18,261,292 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total impaired loans acquired | | $ | 33,776,230 | | $ | 12,672,309 | | $ | 21,103,921 | | $ | 2,746,647 | | $ | 18,357,274 | | | | |
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        At our acquisition of WSB Holdings, we recorded all loans acquired at the estimated fair value on their purchase date with no carryover of the related allowance for loan losses. On the acquisition date, we segregated the loan portfolio into two loan pools, performing and non-performing. |
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        We had an independent third party determine the net discounted value of cash flows on approximately 450 performing loans totaling $143.5 million. The valuation took into consideration the loans' underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposures, and remaining balances. These performing loans were segregated into pools based on loan and payment type and in some cases, risk grade. The effect of this fair valuation process was a net premium of $3.2 million at acquisition. We then adjusted these values for inherent credit risk within each pool, which resulted in a total credit adjustment of $2.5 million. |
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        We also individually evaluated 128 impaired loans totaling $33.7 million to determine the fair value as of the May 10, 2013 measurement date. In determining the fair value for each individually evaluated impaired loan, we considered a number of factors including the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral and net present value of cash flows we expect to receive, among others. |
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        We established a credit risk related non-accretable difference of $12.7 million relating to these acquired, credit impaired loans, reflected in the recorded net fair value. We further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $2.6 million on the acquisition date relating to these impaired loans. |
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        During the third quarter of 2013, we re-classified $21.1 million (net of credit marks) of our acquired loans to available for sale from loans acquired in the April 2011 merger with Maryland Bankcorp, the May 2013 merger with WSB Holdings and the repurchase, from another bank, of a participation on one of the WSB Holdings credit impaired loans. The loans disposed of totaled approximately $22.6 million, which consisted primarily of purchase credit impaired loans that we marketed with brokers and settled during the fourth quarter of 2013 through brokered sales transactions. The proceeds of this sale was approximately $3.4 million, which was recorded as gain on sale of loans. The disposals included approximately $12.0 million of loans that were over 90 days past due. |
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        The following tables outline the contractually required payments receivable, cash flows we expect to receive, non-accretable credit adjustments and the accretable yield for all acquired impaired loans at December 31, 2013 and 2012. |
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Acquired Impaired Loans at December 31, 2013 |
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| | | | | | | | | | | | | | | | | | | |
December 31, 2013 | | Contractually | | Non-Accretable | | Cash Flows | | Accretable | | Loans | | | | |
Required | Credit | Expected To Be | Yield | Receivable | | | |
Payments | Adjustments | Collected | | | | | |
Receivable | | | | | | | |
Business loans risk rated 4 at acquisition | | $ | 77,914 | | $ | 5,104 | | $ | 72,810 | | $ | — | | $ | 72,810 | | | | |
Business loans risk rated 5 at acquisition | | | 3,914 | | | 1,797 | | | 2,117 | | | — | | | 2,117 | | | | |
Business loans risk rated 6 at acquisition | | | — | | | — | | | — | | | — | | | — | | | | |
| | | | | | | | | | | | | | |
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Total business loans | | | 81,828 | | | 6,901 | | | 74,927 | | | — | | | 74,927 | | | | |
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Real estate loans risk rated 4 at acquisition | | | 3,487,315 | | | 457,567 | | | 3,029,748 | | | (17,431 | ) | | 3,047,179 | | | | |
Real estate loans risk rated 5 at acquisition | | | 3,554,831 | | | 1,777,689 | | | 1,777,142 | | | 58,202 | | | 1,718,940 | | | | |
Real estate loans risk rated 6 at acquisition | | | 5,358,818 | | | 1,457,087 | | | 3,901,731 | | | — | | | 3,901,731 | | | | |
Real estate loans risk rated 7 at acquisition | | | — | | | — | | | — | | | — | | | — | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total real estate loans | | | 12,400,964 | | | 3,692,343 | | | 8,708,621 | | | 40,771 | | | 8,667,850 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total impaired loans acquired | | $ | 12,482,792 | | $ | 3,699,244 | | $ | 8,783,548 | | $ | 40,771 | | $ | 8,742,777 | | | | |
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Accretable Yield | | | | | | | | | | | | | | | | | | |
Beginning balance December 31, 2012 | | $ | — | | | | | | | | | | | | | | | | |
Additions due to WSB acquisition | | | 2,746,647 | | | | | | | | | | | | | | | | |
Accreted to income | | | (3,841,252 | ) | | | | | | | | | | | | | | | |
Reclassification from non-accretable(1) | | | 3,823,134 | | | | | | | | | | | | | | | | |
Loans sold in the fourth quarter(2) | | | (2,687,758 | ) | | | | | | | | | | | | | | | |
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Ending balance December 31, 2013 | | $ | 40,771 | | | | | | | | | | | | | | | | |
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-1 |
Represents amounts paid in full on loans, payments on loans with zero balances and an increase in cash flows expected to be collected. |
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-2 |
Represents previously acquired impaired loans we pooled and sold in the fourth quarter. |
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Acquired Impaired Loans at December 31, 2012 |
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December 31, 2012 | | Contractually | | Non-Accretable | | Cash Flows | | Accretable | | Loans | | | | |
Required | Credit | Expected To Be | Yield | Receivable | | | |
Payments | Adjustments | Collected | | | | | |
Receivable | | | | | | | |
Business loans risk rated 4 at acquisition | | $ | 1,371,081 | | $ | 205,662 | | $ | 1,165,419 | | $ | — | | $ | 1,165,419 | | | | |
Business loans risk rated 5 at acquisition | | | 50,153 | | | 42,882 | | | 7,271 | | | — | | | 7,271 | | | | |
Business loans risk rated 6 at acquisition | | | 87,422 | | | 52,030 | | | 35,392 | | | — | | | 35,392 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total business loans | | | 1,508,656 | | | 300,574 | | | 1,208,082 | | | — | | | 1,208,082 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Real estate loans risk rated 4 at acquisition | | | 3,526,864 | | | 482,256 | | | 3,044,608 | | | — | | | 3,044,608 | | | | |
Real estate loans risk rated 5 at acquisition | | | 3,474,335 | | | 1,706,877 | | | 1,767,458 | | | — | | | 1,767,458 | | | | |
Real estate loans risk rated 6 at acquisition | | | 16,420,887 | | | 9,077,153 | | | 7,343,734 | | | — | | | 7,343,734 | | | | |
Real estate loans risk rated 7 at acquisition | | | — | | | — | | | — | | | — | | | — | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total real estate loans | | | 23,422,086 | | | 11,266,286 | | | 12,155,800 | | | — | | | 12,155,800 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Total impaired loans acquired | | $ | 24,930,742 | | $ | 11,566,860 | | $ | 13,363,882 | | $ | — | | $ | 13,363,882 | | | | |
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Accretable Yield | | | | | | | | | | | | | | | | | | |
Beginning balance December 31, 2011 | | $ | — | | | | | | | | | | | | | | | | |
Accreted to income | | | 3,343,955 | | | | | | | | | | | | | | | | |
Reclassification from non-accretable(1) | | | (3,343,955 | ) | | | | | | | | | | | | | | | |
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Ending balance December 31, 2012 | | $ | — | | | | | | | | | | | | | | | | |
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-1 |
Represents amounts paid in full on loans, payments on loans with zero balances and an increase in cash flows expected to be collected. |
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Credit Quality Indicators |
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        We review the adequacy of the allowance for loan losses at least quarterly. We base the evaluation of the adequacy of the allowance for loan losses upon loan categories. We categorize loans as residential real estate loans, commercial real estate loans, commercial loans and consumer loans. We further divide commercial real estate loans by owner occupied, investment, hospitality and land acquisition and development. We also divide residential real estate by owner occupied, investment, land acquisition and development and junior liens. All categories are divided by risk rating and loss factors and weighed by risk rating to determine estimated loss amounts. We evaluate delinquent loans and loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with collateral separately and assign loss amounts based upon the evaluation. |
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        We determine loss ratios for all loans based upon a review of the three year loss ratio for the category and qualitative factors. |
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        With respect to commercial loans, management assigns a risk rating of one through nine as follows: |
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• |
Risk rating 1 (Highest Quality)—This category has the highest relative probability of repayment. Borrowers in this category would normally be investment grade risks, meaning entities having access (or capable of access) to the public capital markets and the supporting loan underwriting conforms to the standards of institutional credit providers. Credit risk is virtually absent due to the borrower's substantial financial capacity, superior liquidity, and outstanding debt service coverage. This rating is generally reserved for the strongest customers of the Bank, or for loans that are secured by a perfected security interest in U. S. Government securities, investment grade government sponsored entities bonds, investment grade municipal bonds, insured savings accounts and insured certificates of deposit drawn on Old Line Bank or other high quality financial institutions. Loans to individuals of vast financial capacity, or those supported by conservatively margined liquid collateral, may warrant this Highest Quality rating. |
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• |
Risk rating 2 (Very Good Quality) is normally assigned to a loan with a very high probability of repayment. Borrowers in this category may have access to alternative sources of financing. Credit risk is minimal due to the borrower's sound primary and secondary repayments sources, strong debt capacity and coverage and good management in all key positions. This rating is generally reserved for strong customers of the Bank, or for loans secured by a properly margined portfolio of high quality traded stocks, lower grade municipal bonds and uninsured certificates of deposit at other financial institutions. Loans to individuals of substantial financial capacity, exhibiting significant liquidity, low leverage and a well-defined source of repayment may warrant this Very Good Quality rating. |
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• |
Risk rating 3 (Good Quality) is normally assigned to a loan with a sound primary and secondary source of repayment. This category represents a below average degree of risk as to repayment with no loss potential indicated. Borrowers in this category represent a reasonable credit risk with demonstrated ability to repay the debt from normal business operations. Borrowers should have a sound balance sheet, modest leverage, good liquidity and above average debt service coverage. There should be no significant departure from the intended source and timing of repayment and no undue reliance on secondary sources of repayment. To the extent that some variance exists in one or more criteria being measured, it may be offset by the relative strength of other factors and/or collateral pledged to secure the transaction. Loans to individuals of strong financial capacity, exhibiting good liquidity, reasonable leverage and defined primary and secondary sources of repayment may warrant this Good Quality rating. |
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• |
Risk rating 4 (Average Quality)—This category represents an average degree of risk as to repayment with minimal to no loss potential indicated. Borrowers in this category exhibit generally stable operating trends. Borrowers should have a satisfactory balance sheet, manageable leverage, moderate liquidity and average debt service coverage. There should be no adverse departure from the intended source and timing of repayment and secondary sources of repayment should be readily available. Loans to individuals with adequate to strong net worth and some liquidity may warrant an Average Quality rating. |
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Risk rating 5 (Pass/Watch)—Borrowers in this category generally exhibit characteristics of an Average Quality credit, but may be experiencing income volatility, negative operating trends and a more highly leveraged balance sheet, thus warranting more than the normal level of supervision. Loans to borrowers with industry volatility, declining market share, marginal or new management, weak internal reporting systems, inadequate financial reporting to the Bank and loans to start-up businesses or businesses with untested management generally warrant a "Watch" designation; provided, however, that events or circumstances prompting this rating do not constitute an undue or unwarranted credit risk. Credits that require additional monitoring such as construction loans, asset based loans and loans granted under certain government lending programs (i.e. U. S. Small Business Administration—"SBA") may be carried in this category where the risk or monitoring needs may be higher than the norm. Additionally, credits may be placed in this category because of an adverse event that has not weakened the credit, but which should be followed to assure that resolution occurs without material impact on the borrower. |
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• |
Risk rating 6 (Special Mention)—Loans in this category generally represent currently protected, but potentially weak assets that deserve management's close attention. If left uncorrected, the potential weaknesses may, at some future date, result in deterioration of the repayment prospects for the loan or in the Bank's credit position. These loans constitute an unwarranted credit risk, but do not expose the Bank to sufficient risk to warrant adverse classification. Loans in this category may include credits that the Bank may be unable to supervise properly because of a lack of expertise, inadequate loan agreement, outdated and /or incomplete financial reporting, the condition of and control over collateral, failure to obtain proper documentation, or any other deviations from prudent lending practices. Economic or market conditions that may, in the future, affect the borrower, an adverse trend in the borrower's operations or an imbalanced position in the balance sheet that has not reached a point where liquidation is jeopardized may warrant this Special Mention designation. |
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Risk rating 7 (Substandard)—Loans in this category represent assets inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets have a well-defined weakness, or weaknesses, that jeopardize liquidation of the debt and are characterized by the distinct possibility that the Bank will sustain some loss if deficiencies are not corrected. Loss potential, while existing in the aggregate amount of Substandard credits, does not have to exist in individual extensions of credit classified Substandard. Loans in this category are subject to impairment analysis, may require a specific reserve allocation and may be placed on non-accrual status. |
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• |
Risk rating 8 (Doubtful)—Loans in this category have all the weaknesses inherent in a Substandard credit with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly improbable. The key issue that makes a loan Doubtful is the potential for loss. The possibility for some degree of loss is extremely high, but because of certain important and reasonably specific pending factors that may be advantageous and strengthen the credit, a classification as an estimated loss is deferred until a more exact status can be determined. Such pending factors could include a proposed merger, acquisition or liquidation procedures, additional capital injection, perfection of liens on additional collateral and refinancing plans. Doubtful assets are subject to impairment analysis, a specific reserve allocation and must be placed on non-accrual status. |
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• |
Risk rating 9 (Loss) is assigned to charged-off loans. We consider assets classified as loss as uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has no recovery value, but that it is not practical to defer writing off the worthless assets, even though partial recoveries may occur in the future. Loans are charged off within the period in which they are determined to be uncollectible. |
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        We charge off loans that management has identified as losses. We consider suggestions from our external loan review firm and bank examiners when determining which loans to charge off. We automatically charge off consumer loan accounts based on regulatory requirements. |
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        If a loan that was previously rated a pass performing loan, from our acquisitions, deteriorates subsequent to the acquisition, the subject loan will be assessed for risk and, if necessary, evaluated for impairment. If the risk assessment rating is adversely changed and the loan is determined to not be impaired, the loan will be placed in a migration category and the credit mark established for the loan will be compared to the general reserve allocation that would be applied using the current allowance for loan losses formula for General Reserves. If the credit mark exceeds the allowance for loan losses formula for General Reserves, there will be no change to the allowance for loan losses. If the credit mark is less than the current allowance for loan losses formula for General Reserves, the allowance for loan losses will be increased by the amount of the shortfall by a provision recorded in the income statement. If the loan is deemed impaired, the loan will be subject to evaluation for loss exposure and a specific reserve. If the estimate of loss exposure exceeds the credit mark, the allowance for loan losses will be increased by the amount of the excess loss exposure through a provision. If the credit mark exceeds the estimate of loss exposure there will be no change to the allowance for loan losses. If a loan from the acquired loan portfolio is carrying a specific credit mark and a current evaluation determines that there has been an increase in loss exposure, the allowance for loan losses will be increased by the amount of the current loss exposure in excess of the credit mark. |
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        The following tables outline the allocation of the loan portfolio by risk rating at December 31, 2013 and 2012. |
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| | | | | | | | | | | | | | | | | | | |
| | Account Balance | | | | | | | | | | |
December 31, 2013 | | Legacy | | Acquired | | Total | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | |
Pass(1 - 5) | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | $ | 159,945,564 | | $ | 27,089,317 | | $ | 187,034,881 | | | | | | | | | | |
Investment | | | 159,392,609 | | | 51,664,220 | | | 211,056,829 | | | | | | | | | | |
Hospitality | | | 62,818,042 | | | 8,546,240 | | | 71,364,282 | | | | | | | | | | |
Land and A&D | | | 37,383,344 | | | 8,148,372 | | | 45,531,716 | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 44,064,312 | | | 27,103,460 | | | 71,167,772 | | | | | | | | | | |
First-Owner Occupied | | | 12,896,971 | | | 60,399,843 | | | 73,296,814 | | | | | | | | | | |
Land and A&D | | | 17,778,528 | | | 12,678,761 | | | 30,457,289 | | | | | | | | | | |
HELOC and Jr. Liens | | | 18,302,559 | | | 3,359,063 | | | 21,661,622 | | | | | | | | | | |
Commercial | | | 85,415,692 | | | 9,529,078 | | | 94,944,770 | | | | | | | | | | |
Consumer | | | 10,113,098 | | | 870,843 | | | 10,983,941 | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | 608,110,719 | | | 209,389,197 | | | 817,499,916 | | | | | | | | | | |
Special Mention(6) | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 1,310,107 | | | 2,128,647 | | | 3,438,754 | | | | | | | | | | |
Investment | | | 1,432,243 | | | 835,918 | | | 2,268,161 | | | | | | | | | | |
Hospitality | | | — | | | — | | | — | | | | | | | | | | |
Land and A&D | | | 3,212,463 | | | 250,806 | | | 3,463,269 | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 1,106,938 | | | 733,107 | | | 1,840,045 | | | | | | | | | | |
First-Owner Occupied | | | 87,154 | | | 762,920 | | | 850,074 | | | | | | | | | | |
Land and A&D | | | 2,066,763 | | | — | | | 2,066,763 | | | | | | | | | | |
HELOC and Jr. Liens | | | — | | | — | | | — | | | | | | | | | | |
Commercial | | | 1,841,859 | | | 646,700 | | | 2,488,559 | | | | | | | | | | |
Consumer | | | — | | | — | | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | 11,057,527 | | | 5,358,098 | | | 16,415,625 | | | | | | | | | | |
Substandard(7) | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 1,849,685 | | | 884,767 | | | 2,734,452 | | | | | | | | | | |
Investment | | | 1,363,821 | | | 1,591,538 | | | 2,955,359 | | | | | | | | | | |
Hospitality | | | 4,473,345 | | | — | | | 4,473,345 | | | | | | | | | | |
Land and A&D | | | — | | | — | | | — | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 123,183 | | | 527,528 | | | 650,711 | | | | | | | | | | |
First-Owner Occupied | | | 925,812 | | | 1,084,740 | | | 2,010,552 | | | | | | | | | | |
Land and A&D | | | — | | | 1,046,181 | | | 1,046,181 | | | | | | | | | | |
HELOC and Jr. Liens | | | — | | | — | | | — | | | | | | | | | | |
Commercial | | | 2,371,493 | | | 985,568 | | | 3,357,061 | | | | | | | | | | |
Consumer | | | 14,427 | | | — | | | 14,427 | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | 11,121,766 | | | 6,120,322 | | | 17,242,088 | | | | | | | | | | |
Doubtful(8) | | | — | | | — | | | — | | | | | | | | | | |
Loss(9) | | | — | | | — | | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
Total | | $ | 630,290,012 | | $ | 220,867,617 | | $ | 851,157,629 | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | |
| | Account Balance | | | | | | | | | | |
December 31, 2012 | | Legacy | | Acquired | | Total | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | |
Pass(1 - 5) | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | $ | 142,283,571 | | $ | 33,972,805 | | $ | 176,256,376 | | | | | | | | | | |
Investment | | | 83,869,949 | | | 25,196,743 | | | 109,066,692 | | | | | | | | | | |
Hospitality | | | 56,746,375 | | | — | | | 56,746,375 | | | | | | | | | | |
Land and A&D | | | 18,971,474 | | | 2,628,394 | | | 21,599,868 | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 26,770,315 | | | 14,938,525 | | | 41,708,840 | | | | | | | | | | |
First-Owner Occupied | | | 5,842,098 | | | 26,199,807 | | | 32,041,905 | | | | | | | | | | |
Land and A&D | | | 18,976,502 | | | 6,526,483 | | | 25,502,985 | | | | | | | | | | |
HELOC and Jr. Liens | | | 16,405,433 | | | 3,263,189 | | | 19,668,622 | | | | | | | | | | |
Commercial | | | 65,763,830 | | | 7,438,290 | | | 73,202,120 | | | | | | | | | | |
Consumer | | | 9,937,570 | | | 1,059,219 | | | 10,996,789 | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | 445,567,117 | | | 121,223,455 | | | 566,790,572 | | | | | | | | | | |
Special Mention(6) | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 1,375,435 | | | — | | | 1,375,435 | | | | | | | | | | |
Investment | | | 1,446,504 | | | 702,688 | | | 2,149,192 | | | | | | | | | | |
Hospitality | | | 4,532,278 | | | — | | | 4,532,278 | | | | | | | | | | |
Land and A&D | | | 3,311,001 | | | — | | | 3,311,001 | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 963,280 | | | 1,630,954 | | | 2,594,234 | | | | | | | | | | |
First-Owner Occupied | | | — | | | 667,693 | | | 667,693 | | | | | | | | | | |
Land and A&D | | | 1,215,458 | | | 683,987 | | | 1,899,445 | | | | | | | | | | |
HELOC and Jr. Liens | | | — | | | — | | | — | | | | | | | | | | |
Commercial | | | 1,338,360 | | | 7,271 | | | 1,345,631 | | | | | | | | | | |
Consumer | | | — | | | — | | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | 14,182,316 | | | 3,692,593 | | | 17,874,909 | | | | | | | | | | |
Substandard(7) | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | — | | | 1,946,190 | | | 1,946,190 | | | | | | | | | | |
Investment | | | 1,408,925 | | | — | | | 1,408,925 | | | | | | | | | | |
Hospitality | | | — | | | — | | | — | | | | | | | | | | |
Land and A&D | | | 351,276 | | | 700,000 | | | 1,051,276 | | | | | | | | | | |
Residential Real Estate: | | | | | | | | | | | | | | | | | | | |
First-Investment | | | 138,708 | | | 1,183,473 | | | 1,322,181 | | | | | | | | | | |
First-Owner Occupied | | | 952,287 | | | 2,388,823 | | | 3,341,110 | | | | | | | | | | |
Land and A&D | | | — | | | 591,624 | | | 591,624 | | | | | | | | | | |
HELOC and Jr. Liens | | | — | | | — | | | — | | | | | | | | | | |
Commercial | | | 2,644,281 | | | 1,045,224 | | | 3,689,505 | | | | | | | | | | |
Consumer | | | — | | | — | | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
| | | 5,495,477 | | | 7,855,334 | | | 13,350,811 | | | | | | | | | | |
Doubtful(8) | | | — | | | — | | | — | | | | | | | | | | |
Loss(9) | | | — | | | — | | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
Total | | $ | 465,244,910 | | $ | 132,771,382 | | $ | 598,016,292 | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | | | | | | | |
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        The following tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2013 and 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. During 2013, the loan segments were changed to align with our new allowance methodology which resulted in balance transfers from prior loan categories and assigned to each new loan segment. |
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| | | | | | | | | | | | | | | | | | | |
December 31, 2013 | | Commercial | | Commercial | | Residential | | Consumer | | Total | | | | |
Real Estate | Real Estate | | | |
Beginning balance | | | | | | | | | | | | | | | 3,965,347 | | | | |
General provision for loan losses | | | | | | | | | | | | | | | 1,289,153 | | | | |
| | | | | | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Provision balance transferred | | $ | 597,739 | | $ | 3,359,989 | | $ | 1,260,579 | | $ | 36,193 | | $ | 5,254,500 | | | | |
Provision for loan losses for loans acquired with deteriorated credit quality | | | — | | | 279,037 | | | (64,000 | ) | | — | | | 215,037 | | | | |
Recoveries | | | 141 | | | 32,964 | | | 169,469 | | | 77,066 | | | 279,640 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
| | | 597,880 | | | 3,671,990 | | | 1,366,048 | | | 113,259 | | | 5,749,177 | | | | |
Loans charged off | | | (102,829 | ) | | (102,595 | ) | | (524,814 | ) | | (89,726 | ) | | (819,964 | ) | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending Balance | | $ | 495,051 | | $ | 3,569,395 | | $ | 841,234 | | $ | 23,533 | | $ | 4,929,213 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
| | | | | | | | | | | | | | |
Amount allocated to: | | | | | | | | | | | | | | | | | | | |
Legacy Loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 191,753 | | $ | 1,523,640 | | $ | 167,450 | | $ | 7,390 | | $ | 1,890,233 | | | | |
Other loans not individually evaluated | | | 303,298 | | | 1,766,718 | | | 421,160 | | | 16,143 | | | 2,507,319 | | | | |
Acquired Loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | | — | | | 279,037 | | | 252,624 | | | — | | | 531,661 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending balance | | $ | 495,051 | | $ | 3,569,395 | | $ | 841,234 | | $ | 23,533 | | $ | 4,929,213 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
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December 31, 2012 | | Real Estate | | Commercial | | Boats | | Other | | Total | | | | |
Consumer | | | |
Beginning balance | | $ | 2,123,068 | | $ | 922,310 | | $ | 565,240 | | $ | 130,653 | | $ | 3,741,271 | | | | |
Provision for loan losses for loans | | | 1,056,287 | | | (181,118 | ) | | (224,359 | ) | | 40,007 | | | 690,817 | | | | |
Provision for loan losses for loans acquired with deteriorated credit quality | | | 584,928 | | | 249,255 | | | — | | | — | | | 834,183 | | | | |
Recoveries | | | 32,636 | | | 82,260 | | | — | | | 107,260 | | | 222,156 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
| | | 3,796,919 | | | 1,072,707 | | | 340,881 | | | 277,920 | | | 5,488,427 | | | | |
Loans charged off | | | (970,335 | ) | | (316,753 | ) | | (91,953 | ) | | (144,039 | ) | | (1,523,080 | ) | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending Balance | | $ | 2,826,584 | | $ | 755,954 | | $ | 248,928 | | $ | 133,881 | | $ | 3,965,347 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
| | | | | | | | | | | | | | |
Amount allocated to: | | | | | | | | | | | | | | | | | | | |
Legacy Loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 125,000 | | $ | — | | $ | — | | $ | — | | $ | 125,000 | | | | |
Other loans not individually evaluated | | | 2,384,960 | | | 755,954 | | | 248,928 | | | 133,881 | | | 3,523,723 | | | | |
Acquired Loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | | 316,624 | | | — | | | — | | | — | | | 316,624 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending balance | | $ | 2,826,584 | | $ | 755,954 | | $ | 248,928 | | $ | 133,881 | | $ | 3,965,347 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
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        Our recorded investment in loans as of December 31, 2013 and 2012 related to each balance in the allowance for probable loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows: |
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| | | | | | | | | | | | | | | | | | | |
December 31, 2013 | | Commercial | | Commercial | | Residential | | Consumer | | Total | | | | |
Real Estate | Real Estate | | | |
Legacy loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment with specific reserve | | $ | 459,439 | | $ | 6,111,682 | | $ | 925,814 | | $ | 7,390 | | $ | 7,504,325 | | | | |
Individually evaluated for impairment without specific reserve | | | 2,136,376 | | | 1,849,685 | | | 123,183 | | | — | | | 4,109,244 | | | | |
Other loans not individually evaluated | | | 87,033,228 | | | 425,219,853 | | | 96,303,227 | | | 10,120,135 | | | 618,676,443 | | | | |
Acquired loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition) | | | — | | | 376,050 | | | 543,274 | | | — | | | 919,324 | | | | |
Individually evaluated for impairment without specific reserve (ASC 310-20 at acquisition) | | | 87,387 | | | 579,583 | | | — | | | — | | | 666,970 | | | | |
Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition) | | | — | | | — | | | 241,624 | | | — | | | 241,624 | | | | |
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition) | | | 11,073,960 | | | 100,184,191 | | | 106,910,705 | | | 870,843 | | | 219,039,699 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending balance | | $ | 100,790,390 | | $ | 534,321,044 | | $ | 205,047,827 | | $ | 10,998,368 | | $ | 851,157,629 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
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December 31, 2012 | | Commercial | | Commercial | | Residential | | Consumer | | Total | | | | |
Real Estate | Real Estate | | | |
Legacy loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment with specific reserve | | $ | — | | $ | 351,276 | | $ | 498,186 | | $ | — | | $ | 849,462 | | | | |
Individually evaluated for impairment without specific reserve | | | 2,644,280 | | | 1,408,925 | | | 591,873 | | | — | | | 4,645,078 | | | | |
Other loans not individually evaluated | | | 67,102,192 | | | 312,529,691 | | | 70,174,021 | | | 9,944,466 | | | 459,750,370 | | | | |
Acquired loans: | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment with specific reserve subsequent to acquisition (ASC 310-20 at acquisition) | | | — | | | — | | | 1,603,144 | | | — | | | 1,603,144 | | | | |
Individually evaluated for impairment without specific reserve (ASC 310-30 at acquisition) | | | — | | | — | | | — | | | — | | | — | | | | |
Collectively evaluated for impairment without reserve (ASC 310-20 at acquisition) | | | 8,490,785 | | | 65,103,548 | | | 56,513,914 | | | 1,059,991 | | | 131,168,238 | | | | |
| | | | | | | | | | | | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
Ending balance | | $ | 78,237,257 | | $ | 379,393,440 | | $ | 129,381,138 | | $ | 11,004,457 | | $ | 598,016,292 | | | | |
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​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | | |
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        The following table outlines the maturity and rate re-pricing distribution of the loan portfolio. For purposes of this disclosure, we have classified non-accrual loans as immediately re-pricing or maturing. |
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December 31, | | 2013 | | 2012 | | | | | | | | | | | | | |
Within one year | | $ | 251,460,974 | | $ | 194,007,785 | | | | | | | | | | | | | |
Over one to five years | | | 342,132,684 | | | 318,094,237 | | | | | | | | | | | | | |
Over five years | | | 257,563,971 | | | 85,914,270 | | | | | | | | | | | | | |
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| | $ | 851,157,629 | | $ | 598,016,292 | | | | | | | | | | | | | |
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        As of December 31, 2013, the Bank has pledged loans totaling $268,630,545 to support Federal Home Loan Bank borrowings. |
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        The Bank makes loans to customers located in the Maryland suburbs of Washington D.C. Residential and commercial real estate secure substantial portions of the Bank's loans. Although the loan portfolio is diversified, the regional real estate market and economy will influence its performance. |
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